CHICAGO — Moody's Investors Service on Thursday weighed in on Illinois' failed special legislative session on pension reform, warning that ongoing inaction is a drag on the state's credit due to the strain on its balance sheet.
Moody's rates Illinois' general obligation bonds A2, the lowest among states.
Gov. Pat Quinn called a special session for last Friday, during which he asked lawmakers to approve various versions of pension reform. The special session followed lawmakers' failure to adopt reforms during their regular session this spring.
The state's unfunded pension liabilities total $82.9 billion, for a 43% funded ratio, the worst among the states. Pension payments will consume $5 billion of the state's $33.7 billion fiscal 2013 budget, up $1.1 billion from the previous year.
"Rising employee benefits will erode the state's ability to deliver core services," Moody's said in a special commentary on the negative impact of inaction. "A consequence of this budget strain in the past has been the growth of a large backlog of unpaid bills."
Illinois lawmakers will meet again in late November and early December for an annual veto session, but it's unclear whether an agreement will be reached by then. "In the meantime, the funding challenge will keep growing," Moody's said.
The Democratic governor supports a plan to shift workers to a new plan that cuts cost-of-living increases in exchange for workers' preservation of their retiree health care perks. He also wants to gradually shift to districts the responsibility for suburban and downstate teacher pension payments now covered by the state.
Republicans oppose the teacher shift over fears of the impact on local property taxes while Democrats, who control the General Assembly, have refused to drop their support for it. Lawmakers have also been hesitant to act, as all face re-election in November. Quinn blames Republicans for the impasse and said he plans to launch a grassroots campaign next month to drum up public pressure.
All three rating agencies have warned the state needs to act on pension reform to stabilize its finances and ratings. Standard & Poor's has said it will resolve its negative outlook on the state's A-plus rating by the end of the year based in part on how the state addresses its retirement liabilities. Fitch Ratings assigns an A rating with a stable outlook. Moody's currently assigns a stable outlook.